How the World Works just got off a conference call with McCain campaign advisors Doug Holtz-Eakin and former Hewlett-Packard CEO Carly Fiorina. The topic: "John McCain's Remarks on Housing Crisis."
The flow of the call went pretty much as follows: Reporters pressed for specifics about possible McCain policy initiatives or legislation, to which Holtz-Eakin and Fiorina responded by stressing McCain's "principles." There were also repeated references to McCain's speech as being "vintage John McCain" and a few slaps at Hillary Clinton's proposal for direct assistance to beleaguered states and communities, which both Holtz-Eakin and Fiorina seemed to enjoy labeling as a "slush fund."
One reporter asked if the Bear-Stearns "bail-out" fit in with McCain's oft-stated stand against taxpayer-funded government bail-outs. Fiorina noted that in his speech McCain had said the only reason to extend government help to banks was to avoid the possibility of systemic risk that could take down the entire economy. The Bear-Stearns action qualified under that standard, said Fiorina. McCain, she added, "supports the actions that the Federal Reserve and Treasury Department have taken to date."
Another reporter wanted to know whether McCain had plans for any legislation that might address his call for more "accountability and transparency" in financial markets. Holtz-Eakin again refrained from offering any specifics, but assured listeners that "as to the general issue of what will be the appropriate structure for regulation,"-- in addition to convening a meeting with accountants and asking them to rethink how they did business -- "he will be engaged in a healthy discussion going forward" with all relevant parties.
Another reporter picked up on the point referenced in How the World Works' coverage of McCain's speech and wondered exactly what "regulatory impediments" were restricting financial institutions from raising the necessary capital to adequately protect against possible losses. Here, at last, we did get a specific suggestion, although understanding the details requires a penchant for the arcane.
Under current rules, banks and depository institutions must categorize the kinds of assets and capital carried on their books. These categories are known, for accounting purposes, as "tiers." Different tiers require different percentages of cash-on-hand in relation to assets. Holtz-Eakin said that occasionally it would behoove financial institutions to move capital from one tier to another but they are hampered from doing so by the possibility of having to pay a tax on capital gains for each such shift. So there's your answer: Get rid of the capital gains tax and you help financial institutions achieve the necessary flexibility to manage their risk more appropriately!
Or at least that's the theory.